There are many psychological aspects to the question of rent or buy. While these may be debated in length it is important to get the financial part of the question right.
In this article I will examine the financial aspects of the decisions in the form of the alternative ‘loss’ in each option (Rent Vs. Buy). We are not always aware of the entire financial picture. There is also one more very unique psychological motivation that I think should be discussed.
When addressing a financial question we should isolate those variables which can be measured and compared. We should regard a house as every other asset and ask ourselves which way to purchase the asset is most desirable financially.
In order to compare the two options we must first have a basis of comparison. Evaluating rent or buy, financially can only be made by considering the same asset, of course. Thus, we shall look at two alternative paths to own a house in a certain period of time”:
Option A: Buy the house today and live in it for that period. Henceforth the BUY option.
Option B: Rent the house today and buy it in the end of the period. Henceforth the RENT option.
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As “Kasam” rockets continue to rain on the Israeli city of Sderot and the kibutzim near by and as the radical Islamic Palestinian terror group “Hamas” and “Islamic Jihad” take control over Gaza asking whether the unilateral withdraw from the Gaza Strip was wise is ever more justified. To answer this question I believe we should look at the bigger long term picture.
The Israeli settlements in the Gaza Strip housed over 1,400 families. These settlements were strategically located and enabled the Israeli army to maintain some control over the Gaza strip and the refugee camps within it which house terror infrastructure and are used a base for terror activities and terrorists.
The Israeli public opinion regarding the settlements in the Gaza strip where mixed. Many objected to the heavy military presence required to defend these settlements, the price paid in human life, the suffering of the Palestinian civilian population and the enormous budgets that had to be invested in civilian and military infrastructure.
There was little doubt of the settlements strategic contribution and, by looking back, the contribution of the Israeli military presence to sustain the Palestine moderates in power but the price to be paid was high. Israel was on low moral ground, the supposed oppressor of 1.5 million Palestinians. The defense of these settlements took it’s toll from the Israelis and Palestinians in life, suffering and budgets. Justifying the presence of 1,400 Israeli families among 1.5 million Palestinians was nearly impossible for the word public opinion justifiably tends to emphasize the civilian suffering regardless of circumstances such as terror activities carried out in its name. Another, very important aspect, was the military presence as perceived by the Palestinian population having to face roadblocks and ID checks constantly perpetuated the notion of occupation.
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“How to save money” tips and guides often contain the same old advice. Most of these articles are focused on expenses generated by day to day activities and ways to minimize those expenses. While these do indeed help to save money and lower expenses the money saved is usually a small (though always meaningful) percent of our monthly income.
In this article I will focus on a different part of “How to save money”, a much more effective and meaningful one: The financial part. Simple budgeting, as mentioned above, does indeed help to lower expenses. But it is not an empowering tool. Using finance wisely in our lives can have a stronger and more meaningful effect then ever expected.
The following are 7 tips for better personal finance understanding and management:
1) Use the power of compounding interest – “The most powerful force in the universe is compound interest” Einstein is often quoted for saying. Every 100$ saved for 10 years with 10% yearly interest will be worth 2.5 times more. Save for 20 years and earn 6.7 time the amount.
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Investing in stocks is owning a part of the company while investing in bonds is owning a part of the company’s debt. This difference may sound intuitive and straight forward but it is far from it.
Both stock and bond are means of corporations to raise capital in capital markets. A stock is a financial asset which a corporation issues in order to raise capital by giving up a certain percent of ownership over the corporation. A bond is a certificate of debt issued by a corporation or country which is required, usually, to pay a fixed sum annually until maturity and a fixed sum to repay the Principal.
The basis for comparing both financial assets is derived from the aforementioned difference:
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